In 2007 for example, prices rose by a whopping 25.3%, according to estate agency Knight Frank, posting the second-highest annual rise on record. As a result, an acre of farmland that only cost £3,000 three years ago can now fetch around £7,000, according to James Laing of Strutt & Parker.

But why has farmland – traditionally a money pit – suddenly soared in value? The obvious reason is the rising price of what is grown on it, including soft commodities such as wheat and corn. In addition, Irish and Danish farmers have helped to push prices up by buying British land in place of their own, which has now become too expensive. Irish buyers, for example, represented 4.8% of all buyers in 2007 – up from 2.5% the previous year – while Danish buyers accounted for 10.3% of purchases, compared to 9.3% in 2006. Many British farmers are also getting in on the act by expanding acreage to achieve economies of scale. This is hardly surprising when a tractor costs more than a top-of-the-range Mercedes.

Then there are the rich City workers who have been buying farmland partly as an investment, partly as a lifestyle choice and, in some cases, as a way to avoid tax – farmland owned at least two years after the purchase date escapes inheritance tax, provided it is still used for agricultural purposes. So, “it seems there has never been a better time to become a ‘gentleman farmer’”, says Emma Simon in The Daily Telegraph.

The trouble is, the best time to buy land cheaply may have passed by now. With crop prices on the up as the world clamours for food, farmers are in no hurry to exit – the proportion selling fell from 62.3% in 2006 to 58% in 2007. Farmland enthusiasts might, therefore, be best off in a broader agriculture fund, such as CF Eclectica Agriculture, or an ETF such as LSE:AGAP.

A week in the property market

• The Royal Institute of Chartered Surveyors (RICS) has predicted that house prices will fall by 7% this year, while sales will plunge by 40% if the mortgage shortage doesn’t ease.

• Savills, the estate agent, thinks house prices may drop by 25% over the next two years unless the Government intervenes.

• Estate agents now have an average of 73 unsold properties on their books – the highest number Rightmove has ever recorded.

• Rightmove announced that asking prices rose by 1.2% this month, taking the annual price rise to 2.20%, with an average house now costing £242,500. But Rightmove also conceded that this month’s figures are skewed by “discretionary spring sellers” of large homes, which actually “mask year-on-year falls in six out of ten regions”.

• The latest housebuilding figures from the UK Statistics Authority show that housing starts – new homes being built – fell 21% in the last quarter and are 24% lower than the first quarter of 2007. Completions are down 18% compared to the same period last year.

• “Nowadays, there is no money in it at all…we were completely shafted,” said home inspector Nick Cowley, quoted in The Sunday Times complaining about his fate, and that of his colleagues, after the Government delayed the full introduction of Hips.

Source: England’s Green and Pricey Land

Moreover, the credit squeeze showed no sign of easing this week, with banks’ continued reluctance to lend to each other propelling the gap between the UK three-month interbank rate and the base rate to the highest level since the crisis began. Banks have been urging the Bank of England to widen the range of collateral it will accept in an effort to unblock the money markets.

The crunch continues

Against this backdrop, it’s no wonder the Halifax ignored Gordon Brown’s call for lower mortgage rates. It upped the rate on its two-year tracker to 1.99% above the base rate from 1.49%, highlighting “the impotence of the Bank’s interest rate cuts”, as Nigel Morris said in The Independent.

Meanwhile, around 600,000 people, double last year’s figure, could face bankruptcy or taking out an IVA, a debt restructuring programme, this year, said TDX Group. Thanks to the crunch, remortgaging or taking out new loans to pay off existing ones will be much harder in 2008.

Housing and retail suffer

The impact on the wider economy, meanwhile, became clearer. The housing market slide gathered momentum, with the latest RICS survey revealing that 79% more surveyors reported falling rather than rising house prices – the worst figure since the survey’s inception in 1978. With the stock of unsold property at a decade high and ever-tighter lending criteria crimping the purchasing power of the dwindling number of active buyers, “further house price falls seem inevitable”, said Capital Economics.

Given the close historical correlation between UK house prices and consumer spending, that means “UK retailers are in for a dead quiet summer”, said Ian Campbell on Breakingviews.com. March saw the first year-on-year drop in retail sales for two years. Consumer caution has kept a lid on inflation as firms have absorbed sharp increases in producer prices to attract buyers; the consumer price index remained static at 2.5% last month, although higher energy prices are set to boost the rate in the near future. The margin squeeze will worsen as falling house prices crimp spending, said David Kern of the British Chamber of Commerce.

Finally, unemployment, always a lagging indicator of trouble, is unlikely to lag much longer. JP Morgan has just doubled its estimate of City job losses owing to the crunch to 40,000, or around 5% of staff. That’s “12 empty Gherkins”, said The Times. Given all the trouble ahead, the damage to the real economy, as Hugo Dixon said on Breakingviews.com, “has barely started”.

Source: http://www.moneyweek.com/file/45576/credit-crisis-will-crunch-real-economy.html

The Royal Institute of Chartered Surveyors (RICS) reports that the number of surveyors reporting lower valuations exceeded those reporting gains by 78.5 percentage points in March. This was up from a 65.7 percentage point gap in February.

Of course, we don’t know by how much prices are falling. But this is yet more evidence of housing market weakness. Pain in store for homeowners, then. But let’s not get too maudlin here.

Yes, some people may soon find themselves with negative equity. But for most, if they’ve borrowed sensibly, can manage their repayments and stay living in their house for a few years, they should find this is a temporary phenomenon.

But what of the wider economy? Does this news herald the Great Housing Crash that will plunge us into recession? It’s easy to see why people think that — and why they’re worried. The RICS survey began in 1978, and its findings last month were the worst since it started. Small wonder, then, that this morning’s headlines proclaimed the biggest housing slump for 30 years.

But the news can be viewed in a positive light. Or, to be more accurate, in a lesser-of-two-evils light (it’s still evil… no happy ending here, I’m afraid).

British houses are really expensive. So the question we need to ask is, do we want them to stay that expensive (and unaffordable), or do we want the market to do its job and bring prices down?

Of course, if you’re selling a house you pick the first option; if you’re buying – the second. But let’s take a step back and look beyond mere self-interest. Everyone’s worried about a housing crash, so let’s examine option number two first. What might happen?

Well, house prices fall. People whose wealth is tied up in their house are poorer… they feel poorer… and they spend less. Businesses make less money… they invest less… the economy slows down. Maybe even shrinks a little. Not a rosy outcome.

So what if (as many would love) we managed, somehow, to keep house prices where they are. Forget for a second that any effort to do so would be, in all likelihood, futile (the cat’s out of the bag on this one — buyers know sellers are scared, and prices only go one way in a buyers’ market).

To keep prices high would require diverting resources from elsewhere in the economy. It would require more new buyers to borrow up to the hilt. In other words, they’d have to hand over larger shares of their future incomes to existing homeowners, imposing a significant constraint on their future spending.

So, in the coming years, they’ll spend less than they otherwise would have had their house been cheaper when they bought it. And businesses will make less money… they’ll invest less… sound familiar?

The housing market needs to correct. Trying to cheat the system will impact our long-term growth negatively.

So neither scenario is rosy. I’d love to wrap up with something that is, but the best I can do is to tell you inflation hasn’t gone up. In February, Consumer Price Index (CPI) inflation was 2.5%. It was 2.5% again in March.

That’s kind of good news… isn’t it? I would go out and celebrate, but have you seen how much a pint costs these days?

A bunch of bankers… and Gordon Brown

The chief executives of Britain’s biggest banks are meeting Gordon Brown today to drink tea, sample the delights of the Downing Street kitchen… oh, and see if they can’t do something about this here credit crisis.

The King of Barclays, the Earl of HBOS, Lord Royal Bank of Scotland and Mr HSBC-man will all take turns bending the prime minister’s ear.

“They have a lot in common,” says Fleet Street Letter editor Brian Durrant. “Both the banks and the PM overplayed their hands in the good times. The banks now have no confidence in each other and the people have lost confidence in Mr Brown.”

Brian tells me that in a speech in east London yesterday, the prime minister said the economy remains his sole focus.

“No wonder people are worried,” he quips.

Tesco profits jump 12%

First quarter earnings season rumbles on. Tesco’s results have caused a storm in a teacup. Tesco decided not to separately publish the results of its new US subsidiary Fresh & Easy. Analysts kicked off about it, taking it as clear evidence that Fresh & Easy was struggling.

“This overlooked the fact that Fresh & Easy accounts for a marginal amount of Tesco’s net income,” says Theo Casey, our master of the level-headed analysis.

The supermarket’s pre-tax profits rose 12%. Happily the market has ignored the analysts’ wailing — at the time of writing Tesco shares are up 22p.

It’s April Bio-fools day

“It’s madness, utter, utter madness!”

Today is not a great day for Manchester’s most vocal biofuels opponent. Commodities maestro Garry White has long argued that they are a con, but it seems only the Germans are listening.

Germany has decided to ignore an EU target that would require 5% of all fuel to come from biofuels by 2010. Sadly, Britain hasn’t. The Renewable Transport Fuel Obligation becomes law today. It requires 2.5% of fuels to come from biofuels as of today — rising to 5% by 2010.

“And guess where we’re getting it from,” says Garry. “Importing it from America. In ships. I bet they don’t run on biofuel!”

Stupid though this policy may be, it’s thrown up an intriguing investment opportunity, and Garry’s going to tell you all about it.

“Let’s get ready to rumble!”

In the blue corner we have the undisputed heavyweight champion, the United States of America. Big, powerful… it has the experience… but maybe it’s a bit too long in the tooth, maybe it’s taken a few to many to the jaw in its time….

In the red corner we have the challenger, China. Lean, hungry… and with quick feet. But China’s moved up a division. Does it have enough to get the better of its opponent?

There’s a lot riding on this bout. The purse is one quarter of all US oil imports by 2015. The venue, the Gulf of Guinea.

“Let’s get ready to rumble!”, booms an excited Manraaj Singh.

China and America are squaring up to each other in the battle for Africa’s oil reserves. Who will win?

So far China’s looked impressive, but America’s just landed a big right hander — it’s sent in the troops. Manraaj has the latest from ringside, including why this new “Cold War” will actually be a good thing for Africa (and why investors would be mad to miss it).

Until tomorrow,

Ben Traynor